BILL ANALYSIS �
SENATE JUDICIARY COMMITTEE
Senator Noreen Evans, Chair
2012-2013 Regular Session
SB 6 (Lieu)
As Amended January 15, 2013
Hearing Date: April 2, 2013
Fiscal: No
Urgency: Yes
RD
SUBJECT
Business
DESCRIPTION
This urgency bill would re-enact repealed provisions of
California's Uniform Commercial Code, relating to the rights
that certain licensees take under a nonexclusive license where a
security interest exists in a general intangible, as specified.
Those provisions previously sunset on January 1, 2013.
This bill would state the intent of the Legislature to negate
the effect of the above sunset, and include an operative date of
January 1, 2013. This bill would sunset on January 1, 2015.
BACKGROUND
Article 9 of the Uniform Commercial Code (UCC) covers security
interests in personal property. It was rewritten and modernized
by the Uniform Law Commission (ULC, formerly the National
Conference of Commissioners on Uniform State Laws, or NCCUSL) in
the late 1990s and in the process the ULC addressed security
interests in general intangible property (such as intellectual
property). Every state has adopted Article 9 as revised, and
California's revised Article 9 became effective on July 1, 2001.
(See AB 45 (Sher, Ch. 991, Stats. 1999).)
As a whole, the new Article 9 simplifies and clarifies the rules
for creation, perfection, priority and enforcement of a security
interest. More specific to this bill, the 1999 revisions to
Article 9 of the UCC created rights for licensees of general
intangibles such as intellectual property comparable to the
(more)
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rights of buyers of goods in the ordinary course of business.
(U. Com. Code Sec. 9321.)
At the time that California considered adoption of the revised
Article 9, the Directors Guild of America, Inc. and the Screen
Actors Guild expressed concerns about how the proposed revision
to Section 9321 would affect their operations. As reflected in
the Senate Judiciary Committee analysis of the 1999 revisions:
The Screen Actors Guild is concerned about the
application of this rule to their industry. They say
that with the rapidly developing technology in their
industry, it is difficult for them at this time to forego
the value of a perfected security interest from a
licensee, even if the license is a nonexclusive license.
Example is given of an actor's residuals from movie
rights to a film rented out by Blockbuster Video, a
nonexclusive licensee. Technology may develop such that
they should be able to enforce their security interest
against a nonexclusive licensee they say, in three years
or so, and therefore suggest that this particular
provision sunset in three years, subject to reenactment.
The drafters of Article 9 resist this vigorously. They
state that a nonexclusive licensee will not "take free"
of a security interest created by the licensor to its
sublicensor if the first license was "exclusive."
(Sen. Judiciary Com., analysis of SB 45 (1999-2000 Reg.
Session), April 13, 1999, p. 10.)
While the ULC assured them at the time that the then-proposed
language of Section 9321 would not have a negative impact in
practice, the groups asked for time to evaluate the impact of
the new Section 9321 on their actual operations. The
Legislature then agreed to limit the operative effect of the new
Section 9321 by including a sunset date of January 1, 2004.
That original sunset date was subsequently extended three times,
most recently to January 1, 2013. However, no bill was
introduced in the 2011-12 legislative session to extend or
repeal that sunset date. Accordingly, the "new" Section 9321
was repealed on January 1, 2013, 12 years after it first took
effect.
This urgency bill would reinstate the repealed provisions of
Section 9321 with an operative of January 1, 2013, and state the
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intent of the Legislature to negate the prior repeal in order
ensure economic stability and continuity for purposes of
contract interpretation. The bill would sunset on January 1,
2015, unless subsequent legislation is enacted to extend or
repeal that date.
CHANGES TO EXISTING LAW
Existing law provides that a lessee in ordinary course of
business takes its leasehold interest free of a security
interest in the goods created by the lessor, even if the
security interest is perfected and the lessee knows of its
existence. (U. Com. Code Sec. 9321.)
This bill would provide that a licensee in ordinary course of
business takes its rights under a nonexclusive license free of a
security interest in the general intangible created by the
licensor, even if the security interest is perfected and the
licensee knows of its existence.
This bill would define "licensee in ordinary course of business"
as a person that becomes a licensee of a general intangible in
good faith, without knowledge that the license violates the
rights of another person in the general intangible, and in the
ordinary course from a person in the business of licensing
general intangibles of that kind. The bill would provide that a
person becomes a licensee in the ordinary course if the license
to the person comports with the usual or customary practices in
the kind of business in which the licensor is engaged or with
the licensor's own usual or customary practices.
This bill would state the intent of the Legislature to negate
the repeal on January 1, 2013, of, and to enhance, existing
provisions within Section 9321 of the Uniform Commercial Code
relating to a licensee in ordinary course of business in order
to ensure economic stability and continuity for purposes of
contract interpretation.
This bill would include a January 1, 2015 sunset date for the
above added provisions, unless a later enacted statute deletes
or extends that date, as specified.
This bill would provide that, operative January 1, 2015, a
lessee in ordinary course of business takes its leasehold
interest free of a security interest in the goods created by the
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lessor, even if the security interest is perfected and the
lessee knows of its existence
This bill contains an urgency clause and would therefore take
effect immediately.
COMMENT
1. Stated need for the bill
According to the author, "Section 9321 of the Commercial Code
sunset on January 1, 2013. [ . . . ] In order to ensure that
California's authors, creators and performers have the same
protections as other states it is imperative that California
reinstates this uniform code with urgency."
Co-sponsors of the bill, the Directors Guild of America, Screen
Actors Guild-American Federation of Television and Radio
Artists, and Writers Guild of America, West add:
Section 9321 is important to our three Guilds, as it helps
protect our members' financial interest. It is through the
Guilds that writers, performers and directors receive
continuing payments, called residuals, which are based on
revenue derived from the continuing exploitation of the
works they create (e.g., home video, new media and
television exploitation). The Guilds rely on security
interests or liens to protect payment of residuals. If
distributors are able to take their licensed rights free of
Guild liens, the ability of the Guilds to protect our
members' financial interests will be significantly
impaired, even when those distributors are contractually
responsible for residual payments.
[ . . . ] [I]t is critical that California's Commercial
Code does not provide lesser protections for authors,
creators and performers than exist in other states-this
would be especially ironic, given that California is home
to the entertainment industry.
2. SB 6 seeks to undo the effects of allowing existing law to
sunset
This bill seeks to re-enact provisions of Section 9321 of the
Uniform Commercial Code, which were repealed on January 1, 2013,
and to negate the effect of the repeal. Accordingly, the bill
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includes an operative date of January 1, 2013, as well as an
urgency clause stating that it is necessary for the bill to take
immediate effect ". . . to negate the repeal of, and to enhance
existing law relating to a licensee in ordinary course of
business to ensure economic stability and continuity for
purposes of contract interpretation. . . ."
As a result, Section 9321 would be restored to read as it has
since the adoption of the revised Article 9 well over a decade
ago (see Background). That re-enactment would allow a licensee
in ordinary course of business, as specified, to take its rights
under a nonexclusive license free of a security interest in the
general intangible created by the licensor, even if the security
interest is perfected and the licensee knows of its existence.
In other words, under this language, when a customer legally
purchases a movie from retailer, the customer would receive a
nonexclusive license for the movie, and the
actors/directors/writers would not be able to go after the
consumer to collect on any security interest in the movie
itself.
Committee staff notes that while this is the first time since
the enactment of the revised Section 9321 that the sunset has
been allowed to lapse, an urgency bill was required in the
2009-10 legislative session to extend the sunset to January 1,
2013. This Committee's analysis of AB 224 (Portatino, Ch. 315,
Stats. 2009; extending the sunset to January 1, 2013) noted that
an urgency clause was required in that bill due to "the
sponsor's 'inattention' to seeking an extension of the sunset
date earlier in the session . . . ." (Sen. Judiciary Com.,
analysis of AB 224 (2009-2010 Reg. Session), August 26, 2009, p.
3.)
While staff also notes that any uncertainty that arose after the
lapse of Section 9321's sunset date on January 1, 2013 cannot,
as a practical matter, be entirely erased, as a matter of public
policy, it is arguably preferable to reinstate those provisions
immediately to both minimize the effect of any confusion and
provide certainty moving forward. Also, though the sponsors of
this bill continue to work with other stakeholders, such as the
Motion Picture Association of America, to address their
industry-specific interests, all stakeholders appear to agree
that it is imperative to reenact these provisions immediately,
and with an operative date that will negate the repeal that
occurred on January 1, 2013.
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While this bill would address the more immediate concerns, the
provisions would again sunset on January 1, 2015.
3. Amendments required to reflect the reduced scope of the
bill
The introduced version of SB 6 sought to not only re-enact the
provisions of Section 9321 that sunset on January 1, 2013, but
to enhance the provisions in a manner that sponsors hoped would
address the concerns that their industry has had since the
enactment of the revised Section 9321 in 1999.
Due to concerns raised by other stakeholders, those "enhanced"
provisions were struck from the bill so that negotiations may
continue without delaying the reenactment of the sunset
provisions. However, both the intent and urgency language still
contain references to those enhancements. Accordingly, the
following author's amendments would conform the intent and
urgency language to the reduced scope of the bill:
Author's Amendment:
On page 2, line 3, strike ", and also to enhance,"
On page 3, line 18, strike ", and to enhance,"
Support : California Commission on Uniform State Laws; Motion
Picture Association of America, Inc.
Opposition : None Known
HISTORY
Source : Directors Guild of America; Screen Actors
Guild-American Federation of Television and Radio Artists;
Writers Guild of America, West
Related Pending Legislation : None Known
Prior Legislation :
AB 224 (Portatino, Ch. 315, Stats. 2009), extended the sunset to
January 1, 2013.
AB 2303 (Judiciary, Ch. 567, Stats. 2006), extended the sunset
to January 1, 2010.
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SB 283 (Sher, Ch. 235, Stats. 2003), extended the sunset to
January 1, 2007.
SB 45 (Sher, Ch. 991, Stats. 1999), See Background.
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